Yes, but he rang up Apples first tier CS, not people who would have been in the loop of the missing iPhone. If I found a wallet with your ID in it, and asked a coworker of yours "did Geekoid say he had lost his wallet?" would you consider that to be enough? The iPhone should have gone to either the barkeep or the police. Any amount of common sense tells you that any of the published numbers for Apple will not get the phone returned. The only possible reason to call those numbers for this is so that you can later say "well, I tried to call Apple...."
Is prosecution a good choice? probably overboard, but in taking the phone from the bar, he took on a responsibility to find its owner, not make a half assed attempt that was doomed to failure from the beginning. I would say he should give back the $5000 and call it even, as I don't think that this should entail jail time for him, nut he certainly should not profit from it.
Chen, on the other hand, really should have known better, and I have very little sympathy for whatever happens to him.